4-18-16 Woods Oviatt Labor Alert - New FLSA Rule

United States Department of Labor Issues Much-Anticipated Final Rule Updating FLSA Regulations

Today, the United States Department of Labor (DOL) issued its much anticipated Final Rule updating the regulations governing the exemption of executive, administrative and professional employees from minimum wage and overtime protections of the Fair Labor Standards Act.This Rule will have a significant impact on employers, who should immediately start considering their available options.

The Key Changes:

• The minimum annual salary required in order for an employee to meet the salary level test for exemption is being raised from $23,660 to $47,476, which equates to $913 per week.This is based on a salary level equal to the 40^th percentile of earnings of full-time salaried workers in the lowest-wage Census Region, currently the South[1].Accordingly, employees who make less than $47,476 per year will not qualify for exemption and will now need to receive overtime pay.
• The total annual compensation requirement for highly compensated employees is being raised from $100,000 to $134,004, which is equivalent to the 90^th percentile of full-time salaried workers nationally.To be exempt as a highly compensated employee, the worker must also receive at least the new minimum salary amount of $913 per week on a salary or fee basis and pass a minimal duties test.
• The salary and compensation levels outlined above will be automatically updated every three years to maintain a threshold equal to the 40^th percentile of weekly earnings of full-time salaried workers in the lowest-wage Census Region and the highly compensated employee exemption will be automatically updated to maintain a threshold equal to the 90^th percentile of full-time salaried workers nationally.The updated rates will be published in the Federal Register at least 150 days prior to their effective date, as well as on the DOL’s website.
• The salary basis test (the requirement that an employee must be paid at a predetermined and fixed salary that is not subject to reduction because of variations in quality or quantity of work performed) is being amended so as to allow employers to use nondiscretionary bonuses and incentive payments, including commissions, to satisfy up to 10% of the new salary level.This is a significant change.In order for employers to credit nondiscretionary bonuses and incentive payments toward a portion of the salary level test, the payments must be paid on a quarterly or more frequent basis, although the employer will be permitted to make a “catch up” payment.Please note, where larger bonuses are paid, the amount attributable to the standard salary level test is capped at 10% of the required salary amount.
• There are no changes to the duties tests.

The Final Rule will become effective December 1, 2016.The automatic updates to the salary and compensation levels which are to occur every three years will begin January 1, 2020.

The actual Final Rule will be published in the Federal Register.We will update you as additional information becomes available upon review of the full Rule.

(1] The special salary level for employees in American Samoa is also being raised to $767 per week and the special “base rate” for employees in the motion picture industry is being raised to $1,397 per week.

If you have any questions concerning how the Final Rule will impact your business, or would like to discuss these changes and your options further, please feel free to contact a member of Woods Oviatt Gilman LLP’s Labor & Employment Practice Group:

Gordon S. Dickens, Chair, Labor & Employment Practice Group
585.987.2851
gdickens@woodsoviatt.com

Lorisa D. LaRocca
585.987.2834
llarocca@woodsoviatt.com

Andrew J. Ryan
585.987.2809
aryan@woodsoviatt.com

Greta K. Kolcon
585.987.2812
gkolcon@woodsoviatt.com

William G. Bauer
585.987.2811
wbauer@woodsoviatt.com

John C. Nutter
585.987.2857
jnutter@woodsoviatt.com

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